COVID-19: Airlines provide early indication of global trade impact

In the last crisis it was the finance industry sitting in the eye of the storm. Central banks moved in to provide a series of bailouts to stop the global financial system from melting down. Ten years on and the banks are well capitalized and in a reasonable position to weather this crisis.

As the second and the third factor economic impacts start to emerge from this COVID-19 crisis, the airline industry is one of the notable victims and the question is, what government support will they receive? The US government were the first to provide some, but it is likely not enough. Many airlines are refitting their aircraft for cargo, but this alone will not save them all and this will have significant ramifications for the supply chain.

This morning, Airbus issued a letter to its 133,000 staff informing them that production would be cut by one third. Several airlines have already filed for bankruptcy and other, well-known names like Virgin Atlantic are seeking government and investor support. Airline purchases will be cancelled or significantly delayed. The big question that no one can answer at present is, ‘even if we move back to some form of normality, will consumers rush to get back on a plane?’ This could take some time. We will likely see a reduction in business travel (the most profitable segment for airlines) as businesses get used to working remotely and conducting more business virtually.

The knock-on impact for the supply chain will be enormous. The main two aircraft manufacturers, Boeing and Airbus have vast manufacturing supply chains. Boeing has 12,000 businesses in its supply chain, supporting 1 million jobs. Airbus has similar numbers.

In February this year, global trade dropped 2.6 per cent and we can expect further falls when March numbers are released. Governments will need to balance their support strategically and carefully for the airline industry. Transportation is a critical component of global trade.

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